OMNIQ Corp. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by, or that include the words “may”, “could”, “would”, “should”, “believe”, “expect”, “anticipate”, “plan”, “estimate”, “target”, “project”, “intend”, “foresee” and similar expressions. These statements include, among others, statements regarding our expected business outlook, anticipated financial and operating results, our business strategy and means to implement the strategy, our objectives, the amount and timing of capital expenditures, the likelihood of our success in expanding our business, financing plans, budgets, working capital needs, and sources of liquidity. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the expansion of product offerings geographically or through new marketing applications, the timing and cost of planned capital expenditures, competitive conditions, and general economic conditions. These assumptions could prove inaccurate. Forward-looking statements also involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. In addition, even if our actual results are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, those results may not be indicative of results or developments in subsequent periods. Many of these factors are beyond our ability to control or predict. Such factors include, but are not limited to, the following: ● Our ability to raise capital when needed and on acceptable terms and conditions; ● Our ability to manage credit and debt structures from vendors, debt holders, and secured lenders. ● Our ability to manage the growth of our business through internal growth and acquisitions; ● Competitive pressures; ● Our ability to attract and retain management, and to integrate and maintain technical information and management information systems. ● Compliance with laws and regulations, including those relating to environmental matters, corporate governance matters and tax matters, as well as any future changes to such laws and regulations; and For a more detailed discussion of some of the foregoing risks and uncertainties, see Item 1A — “Risk Factors” in our 2024 Form 10-K and Item 1A — “Risk Factors” in this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2025, as well as other reports and registration statements filed by us with the SEC. These factors should not be construed as exhaustive and should be read with other cautionary statements in this Quarterly Report on Form 10-Q and our other public filings. For more information about us and the announcements we make from time to time, visit our website at www.omniq.com. Introduction We use patented and proprietary artificial intelligence (AI) technology to deliver machine vision image processing solutions including data collection, real-time surveillance and monitoring for supply chain management, homeland security, public safety, traffic & parking management, and access control applications. The technology and services we provide help our clients move people, assets, and data safely and securely through airports, warehouses, schools, national borders, and many other applications and environments. Our principal solutions include hardware, software, communications, and automated management services, technical service and support. Our highly tenured team of professionals has the knowledge and expertise to simplify the integration process for our customers. We deliver practical problem-solving solutions backed by numerous customer references. Our customers include government agencies, healthcare, universities, airports, municipalities and more. We currently engage with several billion-dollar markets with double-digit growth, including the Global Safe City market and the Ticketless Safe Parking market. The following is a discussion of our financial condition, results of operations, financial resources, and working capital. This discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements contained in this Form 10-Q. 3 OVERVIEW Pursuant to the asset sale described in the Notes to the Financial Statements, the assets of one division was sold during the second quarter of 2025. Accordingly, the financial statements have reclassified the related revenues and expenses from both prior periods and the current period into a single line item for “Discontinued Operations” on the face of the financial statements, with further detail provided in the accompanying Notes. The Company’s sales from operations for the nine months ended September 30, 2025, were $24 million, a decrease of approximately $2.8 million, or 10%, over the nine months ended September 30, 2024. The loss from operations for the nine months ended September 30, 2025, was $1.3 million, a decrease of $1.8 million compared with the loss in the nine months ended September 30, 2024, of $3.1 million. Basic loss per share from continuing operations for the nine months ended September 30, 2025, was $0.09 versus loss of ($0.46) per share for the same period in 2024. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 2025, the Company had cash in the amount of $679 thousand and a working capital deficit of $11.8 million, compared to cash in the amount of $2.3 million, and a working capital deficit of $54 million as of December 31, 2024. The Company had stockholders’ deficit attributable to OmniQ stockholders of $13 million and $43.9 million as of September 30, 2025, and December 31, 2024, respectively. This decrease in our stockholders’ deficit was primarily attributable to the sale of one of the divisions at June 30, 2025. The Company’s accumulated deficit was $124.7 million and $123.9 million as of September 30, 2025, and December 31, 2024. The Company’s operations provided net cash of $5.4 million and provided $230 thousand in the nine months ended September 30, 2025, and 2024, respectively. The increase in cash used by operations of $5.2 million is due to an increase in accounts receivables being received as well as reliance on accounts payable being accrued. The Company’s cash used in investing activities was $2.5 million for the nine months ended September 30, 2025, compared to cash used by investing activities of $87 thousand for the nine months ended September 30, 2024. The Company’s financing activities used $2 million of cash during the nine months ended September 30, 2025, and used $2.4 million during the nine months ended September 30, 2024. During the nine months ended September 30, 2025, the Company made payments of $3.4 million on its notes payable, compared to the payments of $2.7 million for the nine months ended September 30, 2024. 4 Results of Operations The following tables set forth certain selected unaudited condensed consolidated statement of operations data for the periods indicated in dollars. In addition, we note that the period-to-period comparison may not be indicative of future performance. Three months ended September 30, Variation In thousands 2025 2024 $ % Revenue $ 8,826 $ 9,454 $ (628 ) (6.64 )% Cost of Goods sold $ 5,867 $ 7,362 $ (1,495 ) (20.31 )% Gross Profit $ 2,959 $ 2,092 $ 867 41.44 % Operating Expenses $ 3,550 $ 2,879 $ 671 23.31 % Loss from operations $ (591 ) $ (787 ) $ 196 (24.90 )% Net loss $ (747 ) $ (1,600 ) $ 853 (53.31 )% Net Loss per common Share from continuing operations $ (0.06 ) $ (0.08 ) $ 0.02 (26.60 )% Revenues For the three months ended September 30, 2025 and 2024, the Company generated net revenues in the amount of $8.8 million and $9.5 million, respectively. The decrease between the three-month periods was attributable to the focusing on more profitable revenue and timing on some orders. Cost of Goods Sold For the three months ended September 30, 2025 and 2024, the Company recognized a total of $5.9 million and $7.43 million, respectively, of cost of goods sold. For the three months ended September 30, 2025 and 2024, cost of goods sold were 66% and 78% of net revenues, respectively. Operating expenses Total operating expenses for the three months ended September 30, 2025 and 2024 recognized was $3.6 million and $2.9 million, respectively, representing a 23% increase. The increase is related to the additional commissions incurred on the sale of the division. Research and Development – Research and development expenses for the three months ended September 30, 2025 and 2024 totaled $436 thousand and $492 thousand, respectively. Selling, general and Administrative – Selling, general and administrative expenses for the three months ended September 30, 2025 and 2024 totaled $2.9 million and $2.1 million, respectively, representing a 41% increase. The increases are related to increases in salaries for key people in 2025 relative to 2024. Depreciation – Depreciation expenses for the three months ended September 30, 2025 and 2024 totaled $17 thousand and $85 thousand, respectively, representing an 80% decrease. Intangible amortization – Intangible amortization expenses for the three months ended September 30, 2025 and 2024 totaled $245 thousand and $228 thousand, respectively. Other income and expenses Interest Expense – Interest expense for the three months ended September 30, 2025 totaled $248 thousand, as compared to $250 thousand for the three months ended September 30, 2024. For the nine months ended September 30, Variation In thousands 2025 2024 $ % Revenue $ 24,213 $ 27,040 $ (2,827 ) (10.45 )% Cost of Goods sold 17,089 20,820 (3,731 ) (17.92 )% Gross Profit 7,124 6,220 904 14.53 % Operating Expenses 8,392 9,275 (883 ) (9.52 )% Loss from operations (1,268 ) (3,055 ) 1,787 (58.49 )% Net loss (784 ) (6,743 ) 5,959 (88.37 )% Net Loss per common Share from continuing operations $ 0.09 $ (0.46 ) $ 0.55 (118.61 )% 5 Revenues For the nine months ended September 30, 2025 and 2024, the Company generated net revenues in the amount of $24.2 million and $27.0 million, respectively. The decrease between the nine-month periods was attributable to the decrease in demand. Cost of Goods Sold For the nine months ended September 30, 2025 and 2024, the Company recognized a total of $17.1 million and $20.8 million, respectively, of cost of goods sold. For the nine months ended September 30, 2025 and 2024, cost of goods sold were 71% and 77% of net revenues, respectively. Operating expenses Total operating expenses for the nine months ended September 30, 2025 and 2024 recognized was $8.4 million and $9.3 million, respectively, representing a 9.5% decrease. The decreases are related to the cost reduction plan put in place by management. Research and Development – Research and development expenses for the nine months ended September 30, 2025 and 2024 totaled $1.4 million and $1.3 million, respectively. Selling, general and Administrative – Selling, general and administrative expenses for the nine months ended September 30, 2025 and 2024 totaled $6.2 million and $6.9 million, respectively, representing a 10.5% decrease. The decreases are related to the cost reduction plan put in place by management. Depreciation – Depreciation expenses for the nine months ended September 30, 2025, and 2024 totaled $53 thousand and $284 thousand, respectively. Intangible amortization – Intangible amortization expenses for the nine months ended September 30, 2025, and 2024 totaled $713 thousand and $686 million, respectively. Other income and expenses Interest Expense – Interest expense for the nine months ended September 30, 2025 totaled $651 thousand, as compared to $820 thousand million for the nine months ended September 30, 2024. Inflation The Company’s results of operations have not been materially affected by inflation and management does not expect inflation to have a material impact on its operations in the future. Off- Balance Sheet Arrangements The Company currently does not have any off-balance sheet arrangements. Cybersecurity Risk Management and Strategy We recognize the critical importance of developing, implementing, and maintaining robust cybersecurity measures to safeguard our information systems and protect the confidentiality, integrity, and availability of our data. Managing Material Risks & Integrated Overall Risk Management We have strategically integrated cybersecurity risk management into our broader risk management framework to promote a company-wide culture of cybersecurity risk management. This integration ensures that cybersecurity considerations are an integral part of our decision-making processes at every level. Our management team continuously evaluates and addresses cybersecurity risks in alignment with our business objectives and operational needs. Oversee Third-party Risk Because we are aware of the risks associated with third-party service providers, we have implemented stringent processes to oversee and manage these risks. We conduct thorough security assessments of all third-party providers before engagement and maintain ongoing monitoring to ensure compliance with our cybersecurity standards. The monitoring includes annual assessments of the SOC reports of our providers and implementing complementary controls. This approach is designed to mitigate risks related to data breaches or other security incidents originating from third-parties. Risks from Cybersecurity Threats We have not encountered cybersecurity challenges that have materially impaired our operations or financial standing. 6 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable